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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 0-12370

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

July 31, 2004

SI TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

14192 Franklin Avenue, Tustin, CA 92780

(Address of principal executive offices) (Zip Code)

714-505-6483

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12 (b) of the Act:

None

Securities registered pursuant to Section 12 (g):

Common Stock, par value $.01 per share

(Title of Class)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by checkmark if no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange A Rule 12b-2)

Yes ¨ No x

The aggregate market value of the voting stock held by non-affiliates of the registrant (based upon the closing price of such stock, as reported by the Nasdaq stock market on January 31, 2004 was $6,915,361.

The number of shares outstanding of each of the registrant’s common stock as of July 31, 2004 was 4,126,996.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

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PART I

General

SI Technologies, Inc. and subsidiaries (“SI”, “SI Technologies” or the “Company”) designs, manufactures and markets high-performance industrial sensors, weighing and factory automation systems, and related products. Five acquisitions in the late 1990s have enabled SI to expand to a global supplier of devices, equipment and systems that move, measure and inspect goods and materials. SI products are used around the world in a wide variety of industries, including aerospace, agriculture, aviation, food processing and packaging, forestry, manufacturing, mining, transportation/distribution and waste management.

The Company was incorporated in California in 1979 as Invention, Design, Engineering Associates, Inc. and was reincorporated in Delaware in 1983. In February 1996, the Company changed its name to SI Technologies, Inc. The Company’s principal executive offices and headquarters are located at 14192 Franklin Avenue, Tustin, California. Headquarters communication information is as follows: telephone, 714-505-6483, fax, 714-573-2034, e-mail address, sitech@sitechnologies.com, Web site, www.sitechnologies.com.

The Company’s strategy is to generate profitable growth while becoming a leading supplier of weighing devices, equipment, engineered systems and services used in the niche industrial markets in which it operates and to expand its markets through new product development, strategic alliances and acquisition of complementary products in the $70 billion industrial measurement and automation industry.

Letter of Intent to be Acquired by Vishay Intertechnology, Inc.

SI has signed a non-binding letter of intent which contemplates the acquisition of SI by Vishay Intertechnology, Inc. (“Vishay”). As described in the letter of intent, Vishay would acquire all of the equity of SI in exchange for approximately $17.65 million in cash subject to reduction on a dollar for dollar basis if SI’s outstanding bank indebtedness exceeds $12 million at the closing.

The transaction is subject to satisfactory completion of due diligence by Vishay, the execution of a definitive purchase agreement approved by the Boards of Directors of SI and Vishay, approval of the SI shareholders, and other material conditions. SI has agreed not to solicit or engage in negotiations for an acquisition by any other person/company. Either SI or Vishay may terminate the letter of intent on or after November 20, 2004.

No assurance can be given that SI will complete a transaction with Vishay.

On-going Acquisition/Merger Activities

In pursuit of the Company’s growth strategy, management is continuously evaluating acquisition/merger opportunities with numerous companies. Companies of interest are leading manufacturers, distributors and service providers who compete with technology advantage, are generating internal growth and profit, and show potential for strong synergy with the Company’s technology, manufacturing operations and marketing and sales organization.

Products and Services

Industrial Measurement

The Company’s industrial sensor and control products consist of a wide range of National Type Evaluation (NTEP) and International Organization of Legal Metrology (OIML) approved, EX, Factory Mutual and IP rated load cells, transducers, force translators and custom designed sensors. These devices represent the

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core technology of SI and allow us to design high accuracy electromechanical components that convert a physical force to an electrical signal. When combined with microprocessor-controlled digital electronics, they measure forces such as pressure, weight, mass and torque. Commercially, the products are used for measurement, inspection and control. SI sensor and control products are principally used in electronic weighing equipment; batching, blending, mixing, fill-by-weight applications and, machinery operation and control systems. SI electronic controls are normally designed as an integral part of a complete weighing system. In recent years, SI instrumentation has expanded into more complex electronics to provide users with the ability to acquire, record in memory and download to mainframe management information systems that provide operational information other than weight information. In this expanded capacity, SI instrumentation becomes a critical link between operations and management information systems.

SI designs and manufactures dynamic and static electronic weighing equipment and systems for use in a wide range of industrial applications. As a result of the uniqueness of the Company’s combined sensor, weighing and automation system technologies, SI is one of few manufacturers in the industry who design and manufacture all three of the primary components of an electronic scale. These components are the load-handling structure, sensors and instrumentation. Many manufacturers of conventional scale systems manufacture only load-handling structures, outsourcing to industry suppliers their sensor and instrumentation requirements. The Company utilizes its technical expertise and manufacturing know-how in each of these critical components to provide a competitive advantage and believes our expertise can be exploited through our acquisition/integration growth strategy.

Dynamic weighing systems are installed on transportation vehicles, material-handling equipment and in manufacturing process systems for weight measurement of goods and materials. Weight information generated by these systems has broad application including loading, transporting and delivery payload management; manufacturing process, inventory and quality control; and operations automation. Key products marketed under the AirScale, Allegany, Checkmate, Evergreen Weigh, Structural Instrumentation, RouteMan, SmartPin, The Logger, Trojan, and Tuffer trade names are dynamic “weigh-in-motion” and mobile on-board vehicle and material-handling equipment scales, pallet weighers, crane scales and engineered system scales. SI systems are available as standard products for use with most major original equipment manufacturer (OEM) trucks, trailers, forklifts, loaders, cranes and lifting devices. Products are marketed predominately to the agriculture, construction, forestry, foundry, freight, manufacturing, mining, steel, transportation and waste management industries.

Depending on application, specific economic benefits are derived by eliminating overweight vehicle fines and delays; reduced time loading, checkweighing and adjusting loads to maximum legal limits; reduced mileage and driving time to checkweighing locations such as commercial in-ground truck scales; immediate measurement and recording of pick-up and delivery weights; reduced equipment abuse, maintenance downtime and expense; and higher capital equipment capacity utilization. Additionally, the weight information produced by these systems is often the critical measurement in controlling, batching, blending and mixing operations in the manufacture of materials.

All systems combine force measurement sensors and microprocessor-based electronic instrumentation to meet customer applications. The instrumentation supplies power to the sensors, provides operator interface and controls, processes sensor signals that determine weights, displays weight readings and records in memory weight information and other inputs from the system and/or the operator. Force measurement sensors employing electronic strain gage technology to measure forces applied. The electrical resistance of force measurement sensors changes proportionally to the force applied; thus the return signal to the meter varies by load or force.

The Company’s static weighing system product line consists of scales designed for numerous industrial and aviation weighing applications. Key products marketed under the trade names Air Guardian, Jet Weigh, Lodec, EvergreenWeigh, Road Guardian, and Road Runner are permanent and portable axle scales, wheel-load weighers, canister load cell systems and heavy-capacity platform scales. Much like dynamic weighing systems, the static weighing systems have broad industrial application. Key markets in which these products enjoy

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significant market share include aggregate, aviation, construction, freight terminals, land remediation, mining and weight enforcement. Static weighing systems utilize the same technology as dynamic weighing systems; however, they are designed to weigh loads in a static or stationary mode.

Industrial Automation

SI’s industrial automation products consist of load handling, moving and positioning equipment and systems. These products often utilize highly specialized air-bearing movement systems to move loads of any weight efficiently and with extreme precision. Air bearings are air-cushion devices that are used to “float” heavy loads on a thin film of air. Additionally, the Company manufactures systems utilizing water bearings for use in large outdoor applications where water is used as the flotation medium rather than air. These products, marketed under the trade names AeroCaster, AeroGo, AeroPallets, AeroPlanks and AirShuttle, are the world leaders in practical and efficient methods of movement, transfer, location, rotation and alignment of materials and products weighing from several hundred pounds to more than 6,000 tons.

The Company’s industrial automation product line comprises two distinct categories. The first is a standard product line of rugged, industrial, off-the-shelf air-cushion devices that allow a single person to easily and safely move loads weighing from a few hundred pounds to many tons. Standard products routinely move manufacturing fixtures, printing press bulky paper rolls, jet engines, and other heavy loads.

The other category of the product line consists of engineered products. Engineered products and specialized systems designed and manufactured by the Company in recent years are currently moving 100,000-pound dies, launching ships, moving 4,500-ton stadium sections, transporting aerospace booster rockets and moving large assemblies in and out of assembly line operations in numerous heavy equipment manufacturing facilities. Additional examples of engineered products include: automated guided vehicle systems, transporters, assembly line turntable systems, precision handling and positioning fixtures, quick die/mold changing carts, caisson manufacturing and moving systems, and aircraft inspection turntables.

SI industrial automation products commonly represent significant economic benefit in comparison to conventional material handling equipment through lower capital investment in manufacturing site construction, preparation and system installation, and greater operating efficiencies based on system versatility (not limited to following rails or tracks, as typically required with cranes and conveyors). These systems often represent the most viable means for handling extreme material handling applications involving very heavy loads, precision movement and positioning, and high efficiency assembly line automation.

Marketing and Sales

The Company’s products are marketed and serviced worldwide primarily through 300 distributors and independent manufacturer representatives, each operating in a specific trade area and serving industrial customers, engineering firms and various government agencies. In addition to headquarters marketing and sales personnel, and subsidiary business unit marketing and sales operations, the Company maintains North American regional sales offices in California, Maryland, Oregon, Washington and British Columbia, Canada; and our European Headquarters in Breda, the Netherlands with regional sales offices in France, Germany, the United Kingdom and the Netherlands. Company sales personnel assist distributors, representatives and customers by making direct sales calls on potential customers in areas not covered by distribution, and support the Company’s direct major accounts.

The Company generates leads through a full complement of marketing programs, including advertisement in industry publications, direct-mail advertising, trade show participation and telemarketing. Headquarters and subsidiary personnel initiate the Company’s sales process on all inquiries by providing the potential user with information on Company products and services and qualifying the product lead. After qualification, inquiries are either maintained in sales for follow-up by Company sales personnel and distribution, or dispatched to engineering for design, cost estimating and preparation of price quotations or bid packages.

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Due to the Company’s mix of standard off-the-shelf products and custom-engineered products, the time period between initial inquiry, purchase order receipt and shipment varies widely. Standard product orders are normally shipped within one to three days of purchase order receipt at published prices and with trade terms of FOB factory and 30 days net. Engineered products and projects are subject to specific contract terms negotiated between the Company and customer. Typically, contract terms provide for progress payments, provision for change orders and, on longer-term projects, provision for inflation-based price adjustment. On certain projects, the Company provides complete site preparation, system installation, start-up and customer training services. In this capacity, from time to time, the Company serves as a contractor on a time and material basis.

The Company’s business is not seasonal in nature.

Market Conditions and Competition

Market Conditions

Overall industry growth normally approximates inflation. The Company believes its unique products, diversity of markets and worldwide geographic presence present significant opportunities for internal growth within the industry.

Product uniqueness (niche products) is a competitive advantage for SI. Manufacturers of conventional mature products competing for market share with non-differentiated products normally compete primarily on product price and availability. SI’s unique products such as dynamic weighing and air-bearing load-handling and factory automation systems frequently compete within the industry as substitute products or as an alternative means for meeting the customers’ needs. As a result of this high level of product differentiation and the application versatility of SI’s unique products, the Company believes demand for SI products is more elastic than demand for conventional products within the industry.

Market diversity is a growing competitive advantage for SI. Over the past few years, SI has been redirecting its focus to new markets in an effort to mitigate a sharp capital spending downturn in the Company’s traditionally strong forestry and waste management markets. Since the 1996 acquisition of Evergreen Weigh cross-selling of products and integration of Company sales organizations have steadily increased market share in several markets including, aggregate, aviation, and construction industries. With the acquisition of AeroGo in fiscal 1997, and the acquisitions of NV Technology, Allegany Technology and Revere Transducers in fiscal 1998, the Company has further expanded its market diversity and potential for revenue synergies and increases. The Company intends to capitalize on its growing market diversity, worldwide presence and cross-selling opportunities with an expanding product line to create internal growth.

SI maintains inventories of raw materials, work-in-process and finished goods. To supply products with competitive availability, the Company carries approximately 50% of inventory in finished goods. While the Company manufactures the majority of its value-added components, certain components, manufacturing processes and sub-assemblies are outsourced. Outsourced items are normally purchased on fixed price contracts on a just-in-time basis. Should the need arise, the Company believes that any supplier and/or subcontractor could be replaced without significant disruption to its business.

Competition

Competition in the industrial measurement and automation equipment and system industry is extremely fragmented with approximately 6,000 manufacturers and a greater number of distributors and service companies. To the Company’s knowledge, there are no competitors with the same product mix as SI. Direct competitors (competing head-to-head with similar products) normally compete on a single product line and are smaller and may have less financial resources than SI. General industry-wide competitors (competing with

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alternative conventional products) range from very small, local companies to large, international companies with greater financial resources than SI.

In the dynamic and static weighing systems product line, direct competitors are all smaller, privately held companies. Occasionally and on specific applications, the weighing systems product line competes as an alternative product with larger companies that manufacture conventional, industrial weighing systems. These companies include Cardinal Scale Manufacturing Company, Fairbanks Scale Company, Mettler-Toledo Holding, Inc. and Weigh-Tronix, Inc. Competition among larger manufacturers of conventional weighing systems, due to lack of product differentiation, is principally based on price, local dealer trade-area presence and relationships, and product availability.

Competition in the industrial sensor and control product line varies widely depending on customer type and application. Industry standard sensors sold directly to large industrial scale manufacturers compete primarily on price, quality and service. Standard and custom sensors sold to OEMs of other types of products and equipment, and to user customers in process industries, primarily compete on the supplier’s ability to provide engineering expertise and assistance, quality, and on-going customer support and service. Competitors range from small, local companies to large, international companies.

Competition in load handling and factory automation products is similar to weighing system products. In the air and water bearing product line, all competitors are smaller, privately held companies that may have less financial resources than the Company. Direct competitors include Airfloat, Hovair, and Aircaster. In custom-engineered products and projects, the Company normally competes as a substitute or alternative product versus conventional material-handling equipment manufactured by companies ranging in size from much smaller to significantly larger than the Company.

International markets vary widely in competitive issues. In some countries, price competition is more intense than in North America, while in other markets the relationships and product quality receive more customer emphasis than do marginal pricing differentials, thus price competition is less intensive. As a result of product uniqueness, innovative design solutions, quality of product and dependability, SI products and services are frequently sold in situations where the Company is not the low bidder.

Significant Customers

Historically the Company’s primary customers have been transportation, agriculture, forestry, manufacturing, waste management and general industrial companies. Over the past few years, as a result of the Company’s growth strategy, the customer base has expanded to include the aviation/aerospace, automotive, food processing, construction and maritime industries. Significant customers in recent years include Boeing, Caterpillar, Carrier, Chrysler, Ford, Hyundai, Mettler-Toledo, Lockheed, Michelin, Mitsubishi, NASA, Siemens, and Thiokol just to name a few. SI believes it will continue to expand its product and customer base in developing countries.

While a significant portion of the Company’s annual revenues represent repeat business from its existing customers, no individual customer represents 10% or more of the Company’s revenues.

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Acquisition History

Since 1996, SI Technologies has completed five acquisitions.

Backlog

At July 31, 2004, the Company’s backlog was $6,128,000, compared with $3,093,000 on July 31, 2003. The Company’s backlog consists of written orders and commitments believed to be firm, approximately 95% of which is shippable in fiscal 2005. Purchase orders and contracts for products and services are from time to time modified and/or canceled by mutual consent between the Company and the customer. Therefore, the backlog on any specific date may not be indicative of the Company’s future performance.

Employees

At July 31, 2004, the Company employed 213 full time employees. We have employees located in Tustin, California; Cumberland Maryland; Seattle, Washington; Kelowna, British Columbia and Breda, the Netherlands. The Company believes its relationships with its employees are satisfactory.

Sources of Supply

The materials and components used by the Company to manufacture its products are available from a variety of sources. The Company believes that it is not dependent at this time on any particular supplier for either its materials or components and has experienced no difficulty in obtaining supplies. Outsourcing the production of certain high-volume, low-margin component products to manufacturing partners in low labor cost countries has reduced the Company’s cost of sales. Should the flow of goods from these partners be disrupted, the Company may incur substantial additional costs to procure those goods.

Patents and Trademarks

The Company holds numerous patents on various force measurement devices and weighing system design applications. The patents have expiration dates ranging from 2004 to 2016. The Company also has patent license agreements to build force measurement devices under patents held by others. The license agreements are fully paid up and irrevocable for the lifetime of these patents. The Company has no reason to believe its patents are not valid. However, if the patents were successfully contested, management does not believe it would have a material adverse impact on the Company.

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Research, Development And Engineering Expenses

Research, development and engineering expenses are application engineering costs are for the enhancement of ongoing product lines. The Company has the ability to determine the timing and amount of research, development and engineering expenditures as opportunity arises.

Financial Information about Foreign Operations

Foreign Operations

Included in the consolidated balance sheet at July 31, 2004 are the identifiable assets of the Company’s subsidiary, Revere Transducers Europe B.V., which total approximately $4,450,000.

The Company derives approximately 52% of its revenues from customers within the United States. Approximately 30% come from sales to customers in 16 different countries in Europe. The balance of sales are to Canada, Mexico and Latin America. Sales outside the United States are primarily to developed countries.

For additional information regarding foreign assets and operations, see Note K to the Consolidated Financial Statements included herein.

The Company believes that its properties have been adequately maintained, are in generally good condition and are suitable for the Company’s business as presently conducted. The Company also believes that upon the expiration of its current leases, it either will be able to secure renewal terms or enter into leases for alternative locations at market terms. The Company plans to relocate its Tustin facility to a permanent location in the event that the Vishay acquisition does not materialize

From time to time, the Company is involved in various legal matters in the normal course of business. Management does not believe any matter exists at July 31, 2004 that would result in any significant adverse effect to the financial statements.

No matters were submitted to a vote of stockholders during the quarter ended July 31, 2004.

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PART II

SI’s Common Stock is traded on the Nasdaq SmallCap Stock Market under the symbol “SISI.” The following table sets forth the high and low closing sales prices of the Common Stock, as reported by Nasdaq, by quarter, for fiscal years 2004 and 2003.

Price Range of Common Shares

As of October 18, 2004, there were approximately 200 holders of record of the Company’s Common Stock. Management believes that as of that date there were approximately 600 beneficial owners of the Company’s Common Stock

Dividend Policy

The Company has never paid cash dividends on its Common Stock. The Company intends to retain all future earnings for reinvestment in its business and does not plan to pay dividends in the foreseeable future. Furthermore, the Company is prohibited from declaring and/or paying cash dividends on its capital stock under the terms of certain indebtedness.

Equity Compensation Plan Information

The following tables summarize information concerning currently outstanding and exercisable stock options:

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At or for the year ended July 31:

Overview

SI develops, designs, manufactures and markets high-performance industrial sensors, weighing, and factory automation systems. It products are used in a wide variety of industries including aerospace, aviation, food processing and packaging, forestry manufacturing, mining, transportation, warehousing, distribution, and waste management.

SI categorizes it products into two market applications: industrial measurement, and industrial automation. Its industrial measurement products measure forces such as pressure weight, mass and torque when matched with microprocessor controlled digital electronics. Its industrial automation products are load handling, moving/positioning, and systems for applications in manufacturing, construction and other environments in which heavy bulky materials are being transported and positioned.

Net sales increased 9.8% to $36.3 million in fiscal year 2004 compared to $33.0 million in fiscal year 2003. Net sales increased in both of the Company’s business segments. Net income for fiscal year 2004 was $504,000 compared to $1,197,000 in fiscal year 2003. Net income in fiscal year 2004 was less principally because of a tax benefit of $1,078,000 recorded in fiscal year 2003 due to the elimination of the deferred tax valuation allowance in fiscal year 2003.

The Company has entered into a nonbinding letter of intent with Vishay Intertechnology Company, Inc. (“Vishay”), which contemplates the acquisition of the Company by Vishay. The transaction is subject to satisfactory completion of due diligence by Vishay, the execution of a definitive Purchase Agreement approved by the Board of Directors of SI and Vishay, approval of the SI shareholders and other material conditions. Accordingly, no assurance can be given that the Company will enter into a definitive agreement with Vishay or complete a transaction with Vishay.

During the past several years, the Company has reduced its manufacturing activities and outsourced certain high volume, low margin component products to suppliers in countries with lower labor costs. This has had the effect of improving gross margin while creating excess capacity at its Tustin location. The Company currently leases its corporate headquarters in Tustin, California on a month-to-month basis. If the Company or Vishay determine not to proceed with a transaction, the Company anticipates relocating its corporate headquarters to smaller facility in Southern California, as the Company needs less space due to outsourcing .

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While management expects demand for the Company’s products to continue, the near-term outlook for the Company’s markets remains clouded by uncertain economic conditions and competition. Management believes a recovery in global capital spending would allow the Company to leverage its more efficient operating structure to improve sales and profitability.

RESULTS OF OPERATION

As an aid to understanding the Company’s operating results, the following table indicates the percentage of revenues that each income statement item represents and the percentage increase or decrease in such items for the years indicated.

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Net Sales

Net sales for the year ended July 31, 2004 increased to $36,196,000 or 9.5% from $33,047,000 for the year ended July 31, 2003. A general global economy improvement and an exchange rate gain at the Company’s European operations were the contributing items for the sales increase over the prior year. Sales of industrial automation products increased $1,452,000 or 22.3%.

Net sales for the year ended July 31, 2003 increased to $33,047,000 or 1.3% from $32,613,000 for the year ended July 31, 2002. The increase in sales in industrial measurement products is primarily attributable to favorable exchange rates from Euros to the dollar. Sales of industrial automation products decreased $682,000 or 9.5%, due to decreased volume demand for these products resulting from lower capital equipment spending globally.

Gross Profit

Gross profit for the year ended July 31, 2004 increased $1,113,000 or 9.6% to $12,652,000 from $11,539,000 for the year ended July 31, 2003. The increase in gross profit was primarily attributable to favorable exchange rate from Euros to US dollars and the benefit of outsourcing products to lower cost producers. The corresponding gross margins for the periods were 35.0% and 34.9%, respectively. During the fourth quarter of fiscal 2004, management concluded a thorough review of the existing inventory carrying values by analyzing inventory turns by part number which increased the reserve for excess and obsolete parts by $207,000. As a result of the analysis of product returns during 2004 as compared to 2003, management increased the warranty reserve by $91,000 in the fourth quarter. Management continues to treat warranty cost as a period expense on a monthly basis.

Gross profit for the year ended July 31, 2003 decreased $180,000 or 1.5% to $11,539,000 from $11,719,000 for the year ended July 31, 2002. The decrease in gross profit was primarily attributable to continued downward price pressure in many of the Company products, and a shift to lower margin products during the second half of the year as product mix continued to shift between scale components and complete scale systems. Traditionally, the Company’s complete scale system products earn substantially higher gross profit than the load cell or scale components product line.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1,138,000 or 13.3% from fiscal year 2003 to fiscal year 2004. In addition to increases to due higher net sales, this increase was due to: (i) an increase in consulting fees of $128,000 resulting from strategic planners brought in to assist the Company in establishing

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its strategic plan; (ii) severance payments of $125,000 in connection with the termination of employment of the former chief executive officer; (iii) an $80,000 increase in workers compensation insurance premiums; (iv) an increase of $75,000 in personal property tax due to an assessment for the years 1999-2003; (iv) a $50,000 increase in accounting fees for audit and tax services due in part to increased reporting requirements under the Sarbanes/Oxley Act; and (v) a $50,000 increase in legal fees.

Selling, general and administrative expenses for the years ended July 31, 2003 and 2002 were $8,537,000 and $8,023,000 respectively. The increase of $514,000 or 6.4% was the result the expansion of the Company’s marketing efforts including staff additions of $418,000. Selling, general and administrative expenses as a percentage of sales were 25.8% in 2003 as compared to 24.6% in 2002. Selling, general and administrative expenses for industrial automation decreased by $285,000 or 11.7% as a result of lower sales activity and reductions of administrative costs.

Research, Development And Engineering Expenses

Research, development and engineering expenses for fiscal years 2004, 2003 and 2002 were $1,690,000, $1,565,000 and $1,388,000, respectively. During this period, personnel was added to improve incoming inspection.

Amortization Expenses

In 2003, amortization of goodwill was discontinued when the Company changed the treatment of amortization of goodwill to comply with SFAS 142, “Goodwill and Intangible Assets.”

Intangible amortization expenses amounted to $365,000 in 2002.

Restructuring Charges

The Company was in negotiations to sublet the Maryland facility in the fall of 2002, but was subsequently unable to secure a long-term tenant. The Company has since been unable to sublet the Maryland facility and accordingly, a restructuring charge of $486,000 was recorded in 2003 representing the balance of lease payments for the facility. The Company commenced utilizing the facility in February 2004 and was able to negotiate a rent reduction and reversed $237,000 of the 2003 accrual representing the rent reduction. As a result, the Company recorded a benefit of $237,000 in fiscal year 2004 representing a reversal of a portion of the restructuring charge recorded in fiscal year 2003 and the rent reduction.

Interest Expense and Other Income

Interest expense for 2004 decreased $159,000 or 16.3% from $975,000 in 2003 to $817,000 in 2004. This decrease was directly attributable to a reduction of overall debt of $2,784,000.

Interest expense in 2003 was $976,000 in comparison to $904,000 in 2002. A larger line of credit borrowings accounted for the increase in interest expense as compared to the same period in the prior fiscal year, while interest rates remained relatively stable.

Other expense was $34,000 compared to income of $153,000 in 2003 and $94,000 in 2002.

Income Tax Expense (Benefit)

Income tax expense (benefit) for the years ended July 31, 2004, 2003 and 2002 was $314,000, ($1,078,000) and $540,000, respectively. The Company’s effective tax rate (income tax benefit/expense as a percentage of pretax income) was 47.2%, 905.9% and 47.7% in fiscal years 2004, 2003 and 2002, respectively.

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The U.S. federal corporate income tax rate exceeds the effective tax rate due primarily to state and foreign income taxes and utilization of net operating loss carryforwards. The Company recorded $176,000 as a result of an assessment from Canadian Revenue Agency as current tax expense in the fourth quarter of fiscal 2004. The income tax benefit in fiscal year 2003 was due to the elimination of the valuation allowance for deferred tax, based on the results of 2003.

At July 31, 2004, the Company had approximately $46,000 in net operating loss carryforwards for federal income tax purposes and $174,000 in state net operating loss carryforwards available to offset future taxable income. The federal net operating losses expire by July 31, 2023, and the state net operating losses expire July 31, 2015.

Liquidity, Capital Resources And Financial Condition

At July 31, 2004, the Company’s cash position was $211,000 compared to $284,000 at July 31, 2003. Cash available in excess of that required for general corporate purposes is used to reduce borrowings under the Company’s line of credit. Working capital increased to $1,765,000 at July 31, 2004 from $1,624,000 at July 31, 2003.

The Company’s existing capital resources consist of cash balances and funds available under its line of credit, which are increased or decreased by cash provided by or used in operating activities. Cash provided by operating activities in 2004 was $2,550,000. Operating income, reduction of trade receivables and the cash benefit of depreciation was used to reduce trade payables and increase inventories.

The Company’s cash requirements consist of its general working capital needs, capital expenditures, and obligations under its leases and notes payable. Working capital requirements include the salary costs of employees and related overhead and the purchase of material and components. The Company anticipates capital expenditures of approximately $275,000 in 2005 as compared to $215,000 in 2004. The Company expects sufficient cash flow available to pay current maturities of long-term debt of $983,000.

In March 2004, the Company extended its principal credit agreement with a commercial bank, which covers a revolving line of credit used for United States operations and two term notes. Under the revolving line of credit, which expires January 2, 2005, the Company may borrow up to a maximum of $6 million with a borrowing base of 80% of eligible accounts receivable, 90% of eligible foreign accounts receivable and 50% of eligible inventory (not to exceed $3,625,000). Interest is payable monthly at prime (4.25% at July 31, 2004) plus 2.75%. The Company had borrowing capacity of $907,000 at July 31, 2004 under the revolving line of credit. One of the term notes had an outstanding balance of $350,000 at July 31, 2004, and was payable in monthly installments of $175,000 plus interest at prime plus 3.25%. This note was repaid in full in August 2004. The second note had an outstanding balance of $3,366,000 at July 31, 2004 and was payable in monthly installments of $56,000 plus interest at prime plus 1.75%, with the balance due in November 2005. The line and both notes are secured by substantially all of the Company’s assets and are cross-collateralized and cross-defaulted. The Company is required to maintain certain levels of earnings before interest, taxes, depreciation and amortization, tangible net worth and fixed charge coverage and may not pay any cash dividends. The Company expects to be able to renew the credit agreement in January 2005.

The Company has another revolving line of credit with another commercial bank which permits the Company to borrow up to $2,212,000. The Company using this line of credit primarily for its European operations. The revolving line of credit is renewable annually, bears interest at 6.75% payable quarterly and is secured by certain of the Company’s trade accounts receivable, inventories and equipment.

The Company’s inventories decreased from $10,234,000 at July 31, 2003 to $8,973,000 at July 31, 2004. This decrease was due to a global effort to reduce excess inventories no longer required for manufacturing.

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Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates estimates, including those related to the valuation of inventory and stock adjustments, for reasonableness. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

1. Revenue Recognition and Accounts Receivable

The Company recognizes revenue only when all of the four following criteria are met: 1) Persuasive evidence of an arrangement exists, usually in the form of a written purchase order; 2) Delivery has occurred (or a shipment has been made, depending upon the terms of the purchase order) or services have been rendered; 3) The Company’s price to the buyer is fixed or determinable, usually evidenced by a written purchase order; and 4) Collectability is reasonably assured, based on credit evaluation and history with the customer.

Additionally, on long-term contracts, sales are recorded based on the percentage that incurred costs bear to the total estimated costs at completion. Estimated cost to complete is based on the budget, incurred cost, risk assessment of the cost, and is then adjusted for normal/historical variance of project actual versus budget. Estimated losses are recorded in total when they become evident. These contracts are generally billed and collected based on contractual milestones throughout the project.

2. Reserves

Valuation allowances are maintained for doubtful accounts for estimated losses from the inability of the Company’s customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. All receivable accounts are reviewed regularly by management and written off against the uncollectable reserve when it is determined that the account cannot reasonably be expected to be collected. Recoveries of trade receivables previously written off are recorded when received. No interest is charged on past due accounts. The amounts we will ultimately realize could differ materially from the amounts assumed in arriving at the allowance for doubtful accounts in the accompanying financial statements.

Inventories are stated at the lower of cost or market. The write down of inventory for obsolete items is based on our estimate of the amount considered obsolete based on specific reviews of inventory items. In estimating the allowance, we rely on our knowledge of the industry as well as our current inventory levels. The amounts we will ultimately realize could differ from the estimated amounts. Inventory costs include the cost of material, labor and manufacturing overhead. Each quarter, the Company evaluates its inventories for excess quantities and obsolescence. These estimates are dependent on the Company’s assessment of current and expected orders from its customers. Management estimates a reserve percentage for the estimated net realizable value of slow moving product based upon the number of years sales on hand. The Company reserves for potential excess and obsolete inventory based upon historical usage.

The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The primary length of the warranty period is 12 months. The Company’s warranties require it to repair or replace defective products during the warrant period at no cost to the customer. At the time the product revenue is recognized, the Company records a liability for estimated costs

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that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that may have been identified. (Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts.) The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary.

Management also records a valuation allowance to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized. Management considers estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance.

3. Income taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities, including operating loss carryforwards, are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for effects of changes in tax laws and rates on the date of enactment.

4. Goodwill

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. The Company adopted SFAS 142 effective August 1, 2002.

In conjunction with the adoption of SFAS No. 142, the Company was required to carry out a transitional goodwill impairment evaluation, which requires an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. Initially, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities (including goodwill) to those reporting units as of the date of adoption. If the fair value of a reporting unit was below the unit’s carrying amount, as computed in step one, the Company must complete step two of the transitional goodwill impairment test for that reporting unit as soon as possible, but not later than the end of the year of adoption. If the implied fair value of a reporting unit’s goodwill is less than its recorded goodwill, a transitional goodwill impairment loss will be recognized and reported as the cumulative effect of a change in accounting principle in accordance with Accounting Principles Board Opinion (APB) No. 20, Accounting Changes. Any subsequent impairment losses resulting from events or circumstances that occur after the first day of the fiscal year in which SFAS No. 142 is adopted will be reported as a component of income from continuing or discontinued operations, as appropriate.

Upon adoption of SFAS No. 142, management determined there were three reporting units. For fiscal year ending July 31, 2004, management revised its reporting units from three to two. As a result of the implementation of a new strategic plan, two like units were combined into a global operating, engineering and sales orientation. The carrying value of each respective reporting unit was compared to its current fair value determined using a discounted future cash flows approach. Due to the fair value of each reporting unit exceeding its carrying value, management determined no impairment existed. Management completed its annual goodwill impairment evaluation as of July 31, 2004 and 2003, and further concluded that no additional impairment exists.

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5. Impairment of long lived assets

The Company periodically reviews its long-lived assets, including patents, to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets. For the years ended July 31, 2004 and 2003, management has determined that no impairment of long-lived assets, including patents, exists.

Changes in circumstances, such as the passage of new laws or changes in regulations, technological advances or changes to the Company’s business strategy, could result in the actual useful lives of long-lived assets differing from initial estimates. Factors such as changes in the planned use of equipment, customer attrition, contractual amendments or mandated regulator requirements could result in shortened useful lives. In those cases where the Company determines that the useful life of a long-lived asset should be revised, the Company will amortize or depreciate the net book value in excess of the estimated residual value of its revised remaining useful life.

Inflation

Historically, the impact of inflation has been negligible, as the Company has been able to offset the effects through efficiency and price adjustments.

Contractual Commitments

As of July 31, 2004 the Company had contractual obligations in the form of non-cancelable operating leases (see Note H to the Consolidated Financial Statements) and long-term debt obligations (see Note E to the Consolidated Financial Statements), as follows:

Included in operating leases are payments included in other liabilities for which reserves have been established as more fully described in Note F to the Consolidated Financial Statements.

Information Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in the preceding discussion regarding the Company’s financial position, business strategy and plans of management for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable; it can give no assurance that such expectations will prove to be correct.

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Market risk represents the potential loss that may impact our financial position, results of operations or cash flows due to adverse changes in the financial markets. The Company is exposed to market risk from changes in the base rates on our variable rate debt.

Interest rates-the domestic bank revolving line of credit and term debt (totaling $10.722 million at July 31, 2004) bear interest at a variable rate of prime (4.25% at July 31, 2004) plus an additional amount, as defined in each respective debt agreement.

The Company’s Breda operation procures significant product under contract using U.S. dollars as the method of payment. These products are in turn sold in Euros. Should the exchange rate between the U.S. dollar and the Euro change, the effect could reduce the Company’s gross profit. The exchange rate at July 31, 2004 was 1 Euro to 1.2013 U.S. dollars. The exchange rate since 2001 has ranged from $.8409 to $1.2542, therefore this volatile issue could materially effect the financial statements in the future.

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SI Technologies, Inc.

Index to Financial Statements

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Report of Independent Registered Public Accounting Firm

To the Board of Directors

SI Technologies, Inc.

Tustin, California

We have audited the accompanying consolidated balance sheets of SI Technologies, Inc. as of July 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. In 2003, we did not audit the financial statements of Revere Transducers Europe BV, a consolidated subsidiary, which statements reflect total assets and revenues constituting, 16.3% and 32.9%, of the related 2003 consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Revere Transducers Europe BV, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SI Technologies, Inc. and subsidiaries as of July 31, 2004 and 2003, and the results of their operations and their cash flows for the two years in the period ended July 31, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note A to the financial statements, effective August 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and other Intangible Assets.

/s/ McGladrey & Pullen, LLP

Irvine, California

September 23, 2004, except for Note Q which is dated October 6, 2004.

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Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated statements of operations, stockholders’ equity, and cash flows of SI Technologies, Inc. and Subsidiaries for the year ended July 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and consolidated cash flows of SI Technologies, Inc. and Subsidiaries for the year ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Irvine, California

October 11, 2002

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Report of Independent Registered Public Accounting Firm

Board of Directors

Revere Transducers Europe BV and SI Technologies, Inc.

We have audited the balance sheet of Revere Transducers Europe BV (a wholly owned subsidiary of SI Technologies, Inc.) as of July 31, 2003, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Revere Transducers Europe BV as of July 31, 2003, and the results of its operations and its cash flow for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Arenthals Grant Thornton

Amsterdam

October 3, 2003

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SI Technologies, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

July 31,

(Dollars in Thousands)

ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

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SI Technologies, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended July 31,

(Dollars in Thousands Except Per Share Data)

The accompanying notes are an integral part of these consolidated financial statements.

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SI Technologies, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three years ended July 31, 2004

(Dollars in Thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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SI Technologies, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended July 31,

(Dollars in Thousands)